The Fashion Industry's Merger & Acquisition Activity and Investments for 2020

By Selena Wu

Merger and acquisition activity and investments into the fashion world have increased in pace over the last few years, after a relatively long period of quiet. With 2019 being the year of the megadeals, major retail closures and fash-tech stumbles, we take a look at what 2020 might bring to us in the year coming.

Consolidation in brick-and-mortar retail

The woes of the high street have been well publicised and look set to continue as consumers increasingly switch to shopping online at all price points. Indeed, we already start off 2020 with New Guards Group announcing the acquisition of successful independent multi-brand retailer and clothing brand Opening Ceremony, only to announce the very next day, that they planned to close all their retail locations by the end of the year.

Multi-brand luxury retail in particular has had a very tough time in the last few years and we are likely to see smaller players with strong brand identities acquired by larger groups where existing strong administrative and marketing support will improve the bottom line. It is likely only those with a very strong identity and excellent customer experience continue to stay independent, whilst the rest slowly fade away.

At the high street end, there exists much opportunity for consolidation, especially as a large number of these brands have found that the rise of online-only fast fashion players has eaten away at their traditional customer base, with cheaper product and similar styling. Indeed, many of these fast fashion players are now looking at growing a physical retail presence, a tie up with a brand that has strong physical locations may be beneficial to both parties. In addition, struggling brands with a strong identity continue to be an attractive target, to both industry players and private equity. Arcadia will continue to be an attractive target: despite recent marketing crises and highly publicised losses, Topshop remains a strong brand which could be easily turned around with the right support. 

Love for direct-to-consumer models

As direct-to-consumer businesses mature and start moving from digital to physical, many of the larger existing players will be keen to acquire the knowledge of these young companies to improve the performance of their established brands. Kering and LVMH in particular are on the acquisition trail and it is likely they will seek a DTC brand to help improve customer retention and performance across their stable.

We are also likely to see a number of IPOs of brands who have reached major milestones, such as Glossier, and continued interest from private equity groups, who are attracted by the strong customer loyalty, recurring orders and often more effective marketing than traditional businesses. 

Focus on trend prediction companies who harness data and AI

In fashion retail, it’s been a long journey to the holy grail of being able to predict what a customer would like to buy accurately. Up to now, many online retailers have been good at amassing and analysing their own data, in order to be able to provide customers with shopping suggestions that make sense. However their capabilities are limited to the fact that they can only analyse what the customer does on their own website, providing them with a limited view of their customer’s behaviour. Earlier in the supply chain, the problem becomes harder – how do you predict what people will buy up to 6 months in advance?

There are a number of new start ups seeking to address this problem, all with slightly different approaches. The Yes is an AI powered shopping platform, that is likely to use data from users to provide better shopping suggestions, drawn from a range of products from more than one retailer, due to launch this year. Heuritech, Stylumia and Neural Pocket focus on the supply chain, each using a combination of social media image analysis and taking retail trends into account to predict what products will sell best. Both private equity and industry are investing in these technologies as they reduce waste and once these technologies mature, will become indispensable for major apparel companies.

Sustainability and the sharing economy

As consumers around the world place increasing importance on sustainability, brands across fashion are having to adapt quickly. The industry itself will be extremely interested in supporting in companies which are producing new technologies for more sustainable fabrics, packaging and ways of shipping. Both the industry and private equity will be keenly watching for companies which provide certification which can not be counterfeit or altered, especially blockchain technologies, as consumers demand proof that their purchases are sustainable. 

One particular sector which has garnered great interest from the investment community, is the sharing economy. The US has led the way in this sector, with long established players like Rent the Runway and Le Tote continuing to increase their valuations each funding round. In the UK, we have a number of start ups experimenting with different models. ByRotation and Hurr operate a peer-to-peer model which reduces risk and operating costs for the business, Cocoon operate a subscription model for handbags which creates attractive recurring revenue and MyWardrobe operates a combination peer-to-peer and retail model, increasing its revenue streams and ability to offer unique product through brand collaborations. All companies have received interest from the investment community, due to the potential growth of the whole sector.

The rise of new conglomerates?

For many decades, much of luxury fashion has been dominated by LVMH and Kering, with Richemont holding on to a handful of brands in third place. As the demand for luxury goods, especially fashion, has grown dramatically over the last decade and a half, LVMH has been propelled into becoming the second most valuable company in Europe and the number of designers and luxury brands has exploded. 

This has created the potential for more brands to come together to exploit synergies that are created when administrative support functions are merged. We have seen the emergence of new groups, such as OTB, Capri Holdings, Tapestry and Fosun Fashion, all of whom have stated their intention to continue acquiring new brands.

Continuing disappointment from Farfetch

Whilst much lauded at the time of its IPO, Farfetch has faced a number of problems over the last year, which has caused the company’s market cap to drop from a high $8bn to around $4bn today. The reasons behind this are multiple, with widening losses in the company, a business attempting lots of different strategies at the same time and acquisitions which investors have not been convinced are good strategic moves. These are all issues which will take a time to solve, some of them structural and will require big adjustments in the business, which will continue to weigh on the company’s performance for a long time.